China’s property builders take on record-high debts

Bloomberg

Chinese developers are borrowing a record amount in the offshore loan market this year, adding to the highest debt loads since 2005.

Homebuilders in China received US$5.9 billion from foreign banks, up 39 percent from the same period last year, according to data compiled by Bloomberg. Builder debt has soared to 128 percent of equity, the highest since 2005, according to a Bloomberg Intelligence gauge of 84 companies.

New home prices fell in July in almost all cities the government tracks and developers are missing sales targets.

Chinese Premier Li Keqiang (李克強) is allowing builders to expand financing channels in a bid to stem the slowdown in an economy that derived 16 percent of its growth from property development last year, according to the World Bank.

Sino-Ocean Land Holdings Ltd (海洋地產控股) whose free cash flow last year dropped to a third of that seen the previous year, led the borrowing with a US$800 million loan.

China’s home sales fell 10.5 percent in the first seven months of this year compared to the same period last year to 3 trillion yuan (US$488 billion), Moody’s Investors Service said in a report on Friday last week. New construction declined 20 percent across the country, according to an Aug. 7 report from Fitch Ratings.

Pressure on real-estate companies was underscored by the collapse in March of Zhejiang Xingrun Real Estate Co. Developers, including China Vanke Co (浙江興潤置業投資), the nation’s biggest, have cut prices since then to boost sales.

The slump comes as economic growth is set to cool to 7.4 percent this year, the slowest in more than two decades, according to the median estimate of economists surveyed by Bloomberg.